NOTES TO FINANCIAL
STATEMENTS
JULY 31, 2018
AND 2017
NOTE 1 – GENERAL ORGANIZATION
AND BUSINESS
Tianci International,
Inc. (“the Company”, “Tianci”) was incorporated under the laws of the State of Nevada as Freedom Petroleum,
Inc. on June 13, 2012. In May 2015, the Company changed its name to Steampunk Wizards Inc. and on November 9, 2016, the Company
changed its name to Tianci International, Inc. As of the date of this report, the Company is a holding company and has not carried
out substantive business operations of its own.
The Company’s
fiscal year end is July 31.
Share Exchange and Recapitalization
2015 Share
Exchange
On July 16, 2015,
the Company entered into a share exchange agreement (the “Exchange Agreement”), which was consummated on August 21,
2015, with Steampunk Wizards Ltd., a company incorporated pursuant to the laws of Malta (“Malta Co.”), the Company’s
sole officer and director (the “Officer”), being the owner of record of 11,451,541 common shares (before Reverse Stock
Split transaction, See Note 6) of the Company and the persons (the “Shareholders”), being the owners of record of all
of the issued share capital of Malta Co. (the “Steampunk Stock”) as of July 15, 2015. Pursuant to the Exchange Agreement,
upon surrender by the Shareholders and the cancellation by Malta Co. of the certificates evidencing the Steampunk Stock as registered
in the name of each Shareholder, and pursuant to the registration of the Company in the register of members maintained by Malta
Co. as the new holder of the Steampunk Stock and the issuance of the certificates evidencing the aforementioned registration of
the Steampunk Stock in the name of the Company, the Company would issue 4,812,209 shares (before Reverse Stock Split transaction,
See Note 6) , (the “New Shares”), of the Company’s common stock to the Shareholders (or their designees), and
the Officer would cause 10,096,229 shares (before Reverse Stock Split transaction, See Note 6) of the Company’s common stock
that he owns (the “Officer Stock,” together with the New Shares, the “Acquisition Stock”) to be transferred
to the Shareholders (or their designees), which collectively should represent 55% of the issued and outstanding common stock of
the Company immediately after the closing, in exchange for the Steampunk Stock, representing 100% of the issued share capital of
Malta Co. As a result of the exchange of the Steampunk Stock for the Acquisition Stock (the “Share Exchange”), Malta
Co. would become a wholly owned subsidiary (the “Subsidiary”) of the Company and there would be a change of control
of the Company following the closing. There were no warrants, options or other equity instruments issued in connection with the
Exchange Agreement.
For financial
accounting purposes, the Share Exchange is accounted for as a reverse acquisition by the Malta Co., and resulted in a recapitalization,
with Malta Co. being the accounting acquirer and the Company as the acquired entity. The closing of Share Exchange resulted in
a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer,
Malta Co., and have been prepared to give retroactive effect to the reverse acquisition completed on August 21, 2015, and represent
the operations of Malta Co. The financial statements after the acquisition date include the balance sheets of both companies at
historical cost, the historical results of Malta Co. and the results of the Company from the acquisition date. All share and per
share information in the accompanying financial statements and footnotes has been retroactively restated to reflect the recapitalization.
Incorporated in
2014, Malta Co. was a games development and technology company specialized in developing enchanting games and gaming technology
where the real and virtual worlds blur.
2016 Securities
Sale and Spin-Off
On October 13,
2016, the Company entered into a spin-off agreement (the “Spin-Off Agreement”) with Malta Co., and Praefidi Holdings
Limited (the “Buyer”), an entity organized under the laws of Malta and owned by Brendon Grunewald, former director
of the Company. Pursuant to the Spin-Off Agreement, the Buyer shall receive all of the issued and outstanding capital stock of
Malta Co. and the Company shall receive $2,000 as purchase price. The Buyer shall become the sole equity owner of Malta Co. and
the Company shall have no further interest in Malta Co.
On October 26,
2016, the Company entered into an Agreement and Plan of Merger with its wholly-owned subsidiary, Tianci International, Inc., a
newly formed Nevada Corporation ("Merger Sub"), formed on November 09, 2016, with Merger Sub being the surviving entity.
The transaction contemplated in the Merger Agreement (“Merger”) which became effective on November 9, 2016.
2017 Securities
Sale and Change in Control
On January 4,
2017, the Company issued 19,532,820 shares (before Reverse Stock Split transaction, See Note 6) of our common stock to certain
purchasers in accordance with the terms and conditions of a Securities Purchase Agreement (the “Private Placement SPA”),
at price of $0.005 per share for an aggregate purchase price of $98,104. The shares sold in the private placement were issued in
reliance on an exemption from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
proceeds were used for working capital purposes.
On August 3, 2017,
Tianci, ShiFang Wan (“SFW”), Chuah Su Mei, and the Chuah Su Chen executed a Stock Purchase Agreement (the “Stock
Purchase Agreement”), pursuant to which SFW sold to Chuah Su Chen and Chuah Su Mei an aggregate of 4,397,837 shares of Common
Stock, or approximately 87% of the issued and outstanding Common Stock, at a purchase price of $350,000. The acquisition consummated
on August 15, 2017, and 2,000,000 shares of the Company’s common stock were purchased by Chuah Su Chen using her own personal
funds. Upon consummation, the sole executive officer and director of Tianci resigned from all of her positions with Tianci, and
Chuah Su Mei, Chuah Su Chen and Yeow Yuen Kai were appointed to serve in as executive officers and directors of the Corporation.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING PRACTICES
Basis of Presentation
The financial
statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance
with Generally Accepted Accounting Principles (“GAAP”) of the United States and are presented in U.S. dollars.
Use of Estimates
The preparation
of financial statements in conformity with generally accepted accounting principles of the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more
significant areas requiring the use of estimates include asset impairment and future income tax amounts. Management bases its estimates
on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results
may differ from the estimates.
Cash and Cash Equivalents
Cash and cash
equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less. The Company had $2,000 and $2,360 in cash and cash equivalents at July 31, 2018 and
2017, respectively.
Fair Value of Financial Instruments
The Company follows
ASC 820, "Fair Value Measurements and Disclosures", which defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy
that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources
(observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
The three levels
of the fair value hierarchy are described below:
·
Level
1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to
access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations
are based on quoted prices in active markets that are readily and regularly available.
·
Level
2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the
measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
·
Level
3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such
assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar
techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.
The carrying values
of certain assets and liabilities of the Company, such as cash and cash equivalents, prepaid expenses, accounts payable, and due
to shareholders, approximate fair value due to their relatively short maturities.
Revenue Recognition
The Company has
yet to generate revenues from operations. The Company will recognize revenue when delivery of goods or completion of services has
occurred provided there is persuasive evidence of an agreement exists, acceptance has been approved by its customers, the fee is
fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is reasonably
assured.
Income Taxes
Income taxes are
accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more
likely than not to be realized. See Note 7 for information related to income taxes, including the recorded balances of its valuation
allowance related to deferred tax assets.
Comprehensive Income (Loss)
Comprehensive income (loss) includes
accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss)
on its statements of operations and other comprehensive income (loss).
Basic and Diluted Earnings (Loss)
Per Share
Basic earnings
(loss) per share is calculated by dividing the Company’s net income (loss) applicable to common shareholders by the weighted
average number of common shares during the period. Diluted earnings (loss) per share is calculated by dividing the Company’s
net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year.
The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive
debt or equity. There are no such common stock equivalents outstanding as of July 31, 2018 and 2017.
Concentrations of Credit Risk
The Company's
financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and
accounts receivable. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. The
Company's management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and
as such, it believes that any associated credit risk exposures are limited.
Classification
Certain classifications have been made
to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously
reported net income (loss) or accumulated deficit.
Recent Accounting Pronouncements
On December 22, 2017, the SEC issued Staff
Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides
a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting
under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which
the accounting under ASC 740 is complete. In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118 (SEC Update), Income Taxes (Topic 740). ASU 2018-05 provides guidance regarding the recording
of tax impacts where uncertainty exists, in the period of adoption of the 2017 U.S. Tax Cuts and Jobs Act (the “2017 Tax
Act”). To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it
is able to determine a reasonable estimate, it must record a provisional estimate to be included in the condensed financial statements.
If a company cannot determine a provisional estimate to be included in the condensed financial statements, it should continue to
apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act.
While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation
transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations
and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. The Company is continuing to gather
additional information to determine the final impact.
In February 2018, the FASB issued Accounting
Standards Update No. 2018-02 (ASU 2018-02), Income Statement - Reporting Comprehensive Income (Topic 220). The guidance in ASU
2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act (the Tax Act) of
2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after
December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its
financial statements.
Management has
considered all recent accounting pronouncements issued. The Company's management
believes
that these recent pronouncements will not have a material effect on the Company's financial statements.
NOTE 3 – GOING CONCERN
The accompanying
financial statements have been prepared assuming the Company will continue as a going concern. As of July 31, 2018, the Company
has a working capital deficit of $88,855 and has incurred losses since inception resulting in an accumulated deficit of $1,216,406.
Further losses are anticipated in the development of the business, raising substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this
uncertainty.
The ability to
continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management
intends to finance operating costs over the next twelve months with loans from directors and/or private placements of common stock.
NOTE 4 – DISCONTINUED OPERATIONS
On October 13,
2016, the Company entered into a spin-off agreement (the “Spin-Off Agreement”) with Malta Co., and Praefidi Holdings
Limited (the “Buyer”), an entity organized under the laws of Malta and owned by Brendon Grunewald, former director
of the Company. Pursuant to the Spin-Off Agreement, the Buyer shall receive all of the issued and outstanding capital stock of
Malta Co. and the Company shall receive $2,000 as purchase price. The Buyer shall become the sole equity owner of Malta Co. and
the Company shall have no further interest in Malta Co.
During the year
ended July 31, 2017, the Company recorded a gain on the sale of $200,528. The Company had no continuing involvement in the operations
of Malta Co. The sale of Malta Co. qualified as a discontinued operation of the Company and accordingly, the Company has excluded
results of operations of Malta Co. from its Statements of Operations and Comprehensive Income (Loss) to present this business in
discontinued operations
The following
table shows the results of operations of Malta Co. for fiscal years 2018 and 2017 which are included in the gain (loss) from discontinued
operations:
|
|
Years Ended July 31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Office and miscellaneous
|
|
|
–
|
|
|
|
(498
|
)
|
Gain on sale of investment
|
|
|
–
|
|
|
|
200,528
|
|
Total Income (Expense)
|
|
|
–
|
|
|
|
200,030
|
|
Gain (Loss) from Discontinued Operation, Net of Tax Benefits
|
|
$
|
–
|
|
|
$
|
200,030
|
|
NOTE 5 – RELATED PARTY
TRANSACTIONS
During
the year ended July 31, 2016, a former shareholder of the Company made vendor payments of $11,824 directly on behalf of the Company.
During the year ended July 31, 2017, the debt of $11,824 was forgiven and the Company recorded the debt forgiveness as additional
paid in capital.
During the year
ended July 31, 2017, the Company had a change of control, pursuant to which former shareholders paid $118,640 for outstanding accounts
payable. The $118,640 was immediately forgiven and recorded as contributed capital pursuant conditions of the change of control
(See Note 1).
During the year
ended July 31, 2018, a former officer of the Company advanced $17,030 for working capital purpose. This amount was forgiven and
recorded to additional paid in capital, as part of the change of control (See Note 1).
During the year
ended July 31, 2018, a shareholder of the Company advanced $92,198 for working capital purpose.
As of July 31,
2018 and 2017, the Company owed $92,198 and $0, respectively, to a shareholder of the Company. This loan is non-interest bearing
and due on demand.
NOTE 6 –
EQUITY
Preferred Stock
The Company has
20,000,000 authorized preferred shares with a par value of $0.0001 per share. The Board of Directors are authorized to divide
the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes.
There were no
shares of preferred stock issued and outstanding as of July 31, 2018 and 2017.
Common Stock
The
Company has authorized 100,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder
to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
On August 21,
2015, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 372,711 shares of common stock to the
stockholders of Malta in exchange for 3,170,000 shares of Malta’s common stock, representing 100% of its issued and
outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Malta stockholders
are treated as being outstanding from the date of issuance of the Malta shares.
During the year
ended July 31, 2018, there were no issuances of common stock.
During the year
ended July 31, 2017,
the Company issued the shares of common stock as follows
:
|
·
|
2,553,191 shares (before Reverse Stock Split transaction) of common stock for conversion of debt
(see Note 5).
|
|
·
|
19,532,820 shares (before Reverse Stock Split transaction) of its Common Stock, at a per share
price of $0.005, in a private placement to 42 investors for which the Company received proceeds of $98,104.
|
|
·
|
On April 21, 2017, the Company issued 500,000 shares of common stock, par value $0.0001 per share,
to one shareholder for an aggregate price of $5,000.
|
|
·
|
On July 17, 2017, the Company issued 3,308,628 shares of common stock, par value $0.0001 per share,
to one shareholder for an aggregate price of $3,309.
|
Reverse
Stock Split transaction
On March 15, 2017,
the Company filed a Certificate of Correction with the Nevada Secretary of State, which was effective April 6, 2017 upon its receipt
of the written notice from Financial Industry Regulatory Authority ("FINRA"). Pursuant to the Certificate of Correction,
the Company effectuated a 1-for-40 reverse stock split of its issued and outstanding shares of common stock, $0.0001 par value,
whereby 49,854,280 outstanding shares of the Company’s common stock were exchanged for 1,246,357 shares of the Company's
common stock. Common share amounts and per share amounts in these financial statements have been retroactively adjusted to reflect
this reverse split.
As
a result of the above transactions
,
t
here were 5,054,985 shares of common stock
issued and outstanding as of July 31, 2018 and 2017, respectively.
NOTE 7 – INCOME TAXES
The
USA
Tianci
International, Inc.
files income tax returns in the U.S. federal jurisdiction, and state and local jurisdictions.
On December
22, 2017
H.R. 1
,
originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted.
Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate
(“Federal Tax Rate”) from 34% to 21% effective January 1, 2018
.
The 21% Federal
Tax Rate will apply to earnings reported for the full 2018 fiscal year. In addition, the Company must re-measure its
net deferred tax assets and liabilities using the Federal Tax Rate that will apply when these amounts are expected to reverse.
As of July 31, 2018, the Company can determine a reasonable estimate for certain effects of tax reform and is recording
that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and allowance valuation of deferred
tax assets at July 31, 2018 resulted in a net effect of $0 discrete tax expenses (benefit) which lowered the effective tax
rate by 13% for the year ended July 31, 2018. The provisional remeasurement amount is anticipated to change as data becomes
available allowing more accurate scheduling of the deferred tax assets and liabilities primarily related to net operating loss
carryover.
Malta
In
August 2015, the Company became the parent of Malta Co., a wholly owned Malta subsidiary, which files tax returns in Malta. On
October 13, 2016, the Company entered into a spin-off agreement (the “Spin-Off Agreement”) with Malta Co., and Praefidi
Holdings Limited (the “Buyer”), an entity organized under the laws of Malta and owned by Brendon Grunewald, former
director of the Company (See Note 1). Pursuant to the Spin-Off Agreement, the Company had no further interest in Malta Co. for
the fiscal year ended July 31, 2018.
The U.S. and Malta components of (loss)
income before income taxes for income tax reporting purpose were as follows:
|
|
For the Years Ended July 31,
|
|
|
|
2018
|
|
|
2017
|
|
Continuing operation - United States
|
|
$
|
(96,747
|
)
|
|
$
|
(430,888
|
)
|
Discontinued operation - Malta
|
|
|
–
|
|
|
|
(498
|
)
|
Loss before income taxes
|
|
$
|
(96,747
|
)
|
|
$
|
(431,386
|
)
|
The income tax provision (benefit)
for the years ended July 31, 2018 and 2017 consists of the following:
|
|
For the Years Ended July 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income tax expense (benefit) at statutory rate:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(20,317
|
)
|
|
$
|
(146,502
|
)
|
Malta
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
|
(20,317
|
)
|
|
|
(146,502
|
)
|
Change in valuation allowance
|
|
|
20,317
|
|
|
|
146,502
|
|
Income tax expense (benefit)
|
|
$
|
–
|
|
|
$
|
–
|
|
Deferred taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
recorded for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
As of July 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
708,455
|
|
|
$
|
688,138
|
|
Effect of change in statutory rate
|
|
|
(263,112
|
)
|
|
|
–
|
|
Valuation allowance
|
|
|
(445,343
|
)
|
|
|
(688,138
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The reconciliation of the effective
income tax rate to the U.S. federal statutory rate as of July 31, 2018 and 2017:
|
|
As of July 31,
|
|
|
|
2018
|
|
|
2017
|
|
Federal income tax rate
|
|
|
21.0%
|
|
|
|
34.0%
|
|
Increase in valuation allowance
|
|
|
(21.0%
|
)
|
|
|
(34.0%
|
)
|
Effective income tax rate
|
|
|
0.0%
|
|
|
|
0.0%
|
|
At July 31, 2018
and 2017, the Company had $2,120,682 and $2,023,935, respectively of the U.S. net operating losses (the “U.S. NOLs”),
which are available to offset future taxable income until 2037.
The Company assesses
the likelihood that deferred tax assets will not be realized. ASC 740, “Income Taxes” requires that a valuation allowance
be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized.
A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available,
management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established
a full valuation allowance as of July 31, 2018 and 2017.
The Company has
not completed its evaluation of NOL utilization limitation under IRC Section 382, change of ownership rules, but believes that
it had a change of ownership that would limit the amount of U.S. NOLs that could be utilized each year based on the “Internal
Revenue Code, as Amended “
The Company’s
tax returns are subject to examination by tax authorities beginning with the year ended July 31, 2014.
NOTE 8 – COMMITMENTS AND
CONTINGENCIES
The Company has no other commitments
or contingencies as of July 31, 2018.
From time to time
the Company may become a party to litigation matters involving claims against the Company.
Management believes
that it is adequately insured for its operations and there are no current matters that would have a material effect on the Company's
financial position or results of operations.
NOTE 9 – SUBSEQUENT EVENTS
Management has evaluated subsequent events
through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of July
31, 2018 have been incorporated into these financial statements and there are no subsequent events that require disclosure in accordance
with FASB ASC Topic 855, “Subsequent Events.”